* Of the Northern District of California, sitting by designation.

United States Court of Appeals

For the First Circuit

No. 00-2506

FORD MOTOR COMPANY,

Plaintiff, Appellant,

v.

MEREDITH MOTOR COMPANY, INC.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Paul J. Barbadoro, U.S. District Judge]

Before

Torruella, Circuit Judge,

Campbell, Senior Circuit Judge,

and Schwarzer,* Senior District Judge.

Nicholas T. Christakos, with whom Sutherland Asbill & Brennan LLP

and Bryan M. Haynes, were on brief, for appellant.

Stephanie A. Bray, with whom Wiggin & Nourie, P.A. and Gregory A.

Holmes, were on brief, for appellee.
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August 6, 2001
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TORRUELLA, Circuit Judge. Appellee Meredith Motor Company

("Meredith") filed a protest with the New Hampshire Motor Vehicle

Industry Board (the "Board") pursuant to that state's Motor Vehicle

Franchise Act (the "Act"), N.H. Rev. Stat. Ann. § 357-C, following

appellant Ford Motor Company's ("Ford") decision to relocate a

competing dealer into Meredith's market area. While that proceeding

was pending, Ford filed this action in federal district court, seeking

a declaration that the Act is not retroactive and, in the alternative,

that retroactive application of the Act would violate the Contract and

Due Process Clauses of the Constitution. The Board found Ford in

violation of the Act and, shortly thereafter, the federal district

court issued an order declaring that the Act was intended to be applied

retroactively and that such application was constitutional. Ford

appealed the Board's decision to the New Hampshire Superior Court and

brings this appeal from the decision of the district court. Because

the constitutional questions raised in this appeal rest on questions of

state law that may be resolved by the New Hampshire state courts, we

hold that Pullman abstention is proper in this proceeding. See R.R.

Comm'n v. Pullman Co., 312 U.S. 496 (1941).

I.

Ford is a Delaware Corporation with its principal place of

business in Dearborn, Michigan. Meredith is a New Hampshire

Corporation that has been doing business as an authorized Ford full
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sales and service dealership in Meredith, New Hampshire since 1957. On

June 1, 1972, Ford and Meredith executed a Sales and Service Agreement

(the "Agreement") that was to last an indefinite period. The parties

made several changes to the Agreement over the years, the earliest

dated May 20, 1974 and the latest dated January 15, 1998. Under the

Agreement, Meredith's "dealer locality" consists of seventeen post

office communities in New Hampshire, including the town of Plymouth.

A. The Motor Vehicle Franchise Act

The New Hampshire legislature first adopted a Motor Vehicle

Franchise Act in 1973 which was codified as chapter 357-B. See 1973

N.H. Laws 330:1 (repealed 1981). Chapter 357-B did not expressly give

a dealer the right to challenge a manufacturer's redefinition of its

relevant market area. It did, however, prohibit a manufacturer from

engaging in "any action which is arbitrary, in bad faith, or

unconscionable and which causes damages to any of said parties or to

the public." Id. In addition, it imposed restrictions on a

manufacturer's ability to grant "a competitive franchise in the

relevant market area previously granted to another franchise." Id.

In 1981, the New Hampshire legislature repealed chapter 357-B

and replaced it with § 357-C. By an amendment effective January 1,

1997, the current statute provides for a Motor Vehicle Industry Board

to enforce the chapter's provisions. Under § 357-C, moreover, a

manufacturer must have "good cause" to alter a dealer's relevant market
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area. N.H. Rev. Stat. Ann. § 357:C-3 III(o). The statute also

requires a manufacturer to notify a dealer of any proposal to add or

relocate a competing dealership within the dealer's relevant market

area. Id. at § 357-C:9 III. With respect to the agreements covered by

§ 357-C, the law states the following:

I. All written or oral agreements of any type

between a manufacturer, or distributor or 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 in the courts of this state.

II. Before any new selling agreement or

amendment thereto involving a motor vehicle

dealer and such party become effective, the

manufacturer, distributor, distributor branch or

division, factory branch or division, or agent

thereof shall, 90 days prior to the effective

date thereof, forward a copy of such agreement or

amendment to the attorney general and to the

dealer.

III. Every new selling agreement or amendment

made to such agreement between a motor vehicle

dealer and a manufacturer or distributor shall

include, and if omitted, shall be presumed to

include, the following language: "If any

provision herein contravenes the valid laws or

regulations of the state of New Hampshire, such

provision shall be deemed to be modified to

conform to such laws or regulations; or if any

provision herein, including arbitration

provisions, denied or purports to deny access to

the procedures, forums, or remedies provided for

by such laws or regulations, such provisions

shall be void and unenforceable; and all other

terms and provisions of this agreement shall

remain in full force and effect."
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Id. § 357-C:6.

B. The Dispute

Fuller Ford, Inc. ("Fuller") became a Ford dealer in Bristol,

New Hampshire in December 1993. In 1997, Ford attempted to relocate

Fuller to a facility in Plymouth. To accomplish this relocation, Ford

removed Plymouth from Meredith's market area and assigned it to Fuller.

Meredith challenged the proposed relocation to the Board in February

1998. Meredith subsequently amended its protest to include a challenge

to Ford's decision to realign Meredith's market area under § 357-C:3

III(o). In its response to the Board, Ford noted an "additional

threshold issue arising under the New Hampshire and United States

Constitutions regarding whether the statute, and in particular the 1996

amendments thereto, can be applied retroactively to materially alter

the pre-existing contractual rights of private parties such as Ford and

Meredith." To this end, Ford presented as an issue for the Board

"[w]hether application of the statute in the circumstances of this

cases constitutes an unconstitutional retroactive impairment of the

contracting parties' rights."

In its decision and order dated August 16, 2000, the Board

noted Ford's position that "the application of RSA 357-C:3, III(o) to

its franchise agreement with [Meredith] . . . would be an

unconstitutional retrospective application of law because the contract

predates the adoption of Sections 9, I and 3, III(o)." The Board then
1 The Board found that the Agreement was effectively amended in 1980

and thus used this year as the reference point for applying the

statute.

2 In addition to Ford's request for declaratory relief, Meredith filed

counterclaims alleging that Ford's actions violated § 357-C and the

Agreement. Ford moved to dismiss the counterclaims, but the district

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examined the legislative purpose behind § 357-C:3 III(o) and found that

it "merely made express the result that logic and fairness naturally

implied" from the bad faith language included in the statute's

predecessor. The Board concluded that "[i]t would be illogical to

conclude that RSA 357-C, III(o) should be inapplicable because it was

enacted after 1980 . . . ."1 Though it did not elaborate on its

rationale, the Board also stated that subjecting Ford to the

requirements of § 357-C "impair[ed] no vested private contract right of

Ford's." Finally, the Board concluded that, on the merits, "Ford

failed to act in good faith when it decided to realign [Meredith's]

dealer locality for reasons other than the criteria specified in the

Franchise Agreement, and by not disclosing its true intentions

regarding Plymouth [to Meredith] before December 15, 1997." Ford

appealed the Board's decision to the New Hampshire Superior Court,

where it is currently pending.

C. The Federal Action

The action that is the subject of this appeal was filed in

the federal district court for the District of New Hampshire on

September 28, 1999, while the Board decision was pending.2 Eight days
court denied the motion. In order to expedite review of the

constitutional issues, however, the parties jointly moved the court to

enter judgment only as to Ford's principal claims, which the court also

declined to do. Meredith then stipulated to a dismissal without

prejudice of its counterclaims and the court entered a final judgment

on Ford's claims on November 21, 2000.

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after the Board issued its decision, the district court entered

judgment in favor of Meredith. The district court decision did not

rely upon the Board's order, although a copy had been forwarded to the

court. Instead, the court concluded that the language of § 357-C:6 was

"a clear and unqualified statement of legislative intention to subject

both new and existing dealer agreements to the Act's general regulatory

requirements." Ford Motor Co. v. Meredith Motor Co., No. 99-456-B at

14 (D.N.H. Aug. 24, 2000). The court also found that the parties'

indemnification agreement in 1978 constituted a new contract; since the

law in effect at that time was sufficient to make the subsequent "good

cause" requirement foreseeable, any contractual impairment was not

constitutionally "significant." Id. at 25-26. Finally, the court held

that the retroactive application of the statute was justified by a

legitimate state interest in protecting dealers from manufacturers, and

thus did not violate due process. Id. at 28.

II.

It is well established that "[a]bstention from the exercise

of federal jurisdiction is the exception, not the rule." Colo. River

Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976);
3 Although the district court did not address the issue of abstention,

we note that it was raised in the pleadings below and at oral

argument. In any event, a court may raise the issue of abstention sua

sponte. Pustell, 18 F.3d at 51 n.1 (citing Bellotti v. Baird, 428 U.S.

132, 143 n.10 (1976)).

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see also Pustell v. Lynn Pub. Sch., 18 F.3d 50, 53 (1st Cir. 1994);

Guiney v. Roache, 833 F.2d 1079, 1081 (1st Cir. 1987); Santasucci v.

Gallen, 607 F.2d 527, 528 (1st Cir. 1979). However, "[a]mong those

cases that call most insistently for abstention are those in which the

federal constitutional challenge turns on a state statute, the meaning

of which is unclear under state law." Harris County Comm'rs Court v.

Moore, 420 U.S. 77, 84 (1974). Under the principle set forth in

Railroad Commission v. Pullman Co., 312 U.S. 496 (1941), a federal

court confronted with such circumstances "should stay its hand in order

to provide the state court an opportunity to settle the underlying

state-law question and thus avoid the possibility of unnecessarily

deciding a constitutional question." Harris County, 420 U.S. at 84. 

Pullman abstention thus "serves a dual purpose: it 'avoid[s] the waste

of a tentative decision as well as the friction of a premature

constitutional adjudication.'" Guiney, 833 F.2d at 1081 (quoting

Pullman, 312 U.S. at 500); see also Pustell, 18 F.3d at 53 (noting that

abstention also "promot[es] the principles of comity and federalism by

avoiding needless federal intervention into local affairs").

We believe that Pullman abstention is appropriate in this

case.3 To determine this, we consider two factors: (1) whether there
4 At least one federal court has been faced with the question of

whether § 357-C is retroactive. In dismissing the case for resolution

of this unsettled point in the state courts, the court noted that:

New Hampshire forums are better suited for resolution

of these state-law issues than this court is. The New

Hampshire Motor Vehicle Board has substantial expertise in

this area, having been created by the New Hampshire

legislature for the purpose of adjudicating, among other

disputes within its jurisdiction, those over motor vehicle

franchises. A decision by the Board may be reviewed by New

Hampshire state courts, which have significantly more

experience with New Hampshire law than does this court.

Subaru of New England, Inc. v. Lakes Subaru, Ltd., No. 99-10175, slip

op. at 7 (D. Mass. Apr. 26, 1999) (granting motion to dismiss based on

Colorado River). The court also emphasized that "New Hampshire has

manifested in RSA § 357-C a particular interest in the uniform,

consistent application of that statute to those involved in motor

vehicle sales in New Hampshire," id. at 5, which provides additional

support for abstention in this case as well. See Pustell, 18 F.3d at

54 (considering whether state law at issue is "a matter of particularly

local concern"); accord Santasucci, 697 F.2d at 529.

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is substantial uncertainty over the meaning of the state law at issue;

and (2) whether a state court's clarification of the law would obviate

the need for a federal constitutional ruling. Rivera-Puig v. GarcíaRosario, 983 F.2d 311, 322 (1st Cir. 1992). Here, the applicability of

the state statute to contracts formed before its passage is unclear:

this issue forms the crux of the dispute between Ford and Meredith and

neither party has pointed to an authoritative New Hampshire decision

that resolves this ambiguity.4 Ford's federal claims, moreover, turn

entirely on its statutory claim; the Contracts and Due Process Clauses

are implicated only if § 357-C is found to be retroactive.

Consequently, "[a] dispositive state court interpretation of this issue
5 Ford highlights that one of the issues on appeal is whether the Board

had authority to address its constitutional claims. However, Ford has

also appealed the decision itself, and the question of retroactivity

was squarely presented to and resolved by the Board (albeit not based

on the statutory interpretation espoused by Ford). Thus, a conclusion

that the Board lacked authority to address the constitutional claims

would not preclude review of the retroactivity issue.

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could eliminate entirely the need to address the constitutional

issues." Pustell, 18 F.3d at 53.

A third factor counsels in favor of abstention. "Where there

is an action pending in state court that will likely resolve the statelaw questions underlying the federal claim, [the Supreme Court has]

regularly ordered abstention." Harris County, 420 U.S. at 83 (emphasis

added); see also Romany v. Colegio de Abogados de P.R., 742 F.2d 32, 42

(1st Cir. 1984); Santasucci, 607 F.2d at 529. Since the filing of its

federal court action, Ford has appealed the decision of the Board to

the New Hampshire Superior Court. According to Ford, the state court

proceedings are irrelevant to the instant appeal.5 We disagree.

The outcome of the state proceedings could moot the federal

issues in two ways. First, the Board's decision was based in part on

an initial determination that the Act is retroactive. Indeed, a good

portion of the Board's decision is devoted to examining the history and

purpose of § 357-C and concluding that Ford is subject to its

provisions. It is almost certain that, in reviewing the merits of the

Board's decision, the New Hampshire courts will address the threshold

issue of whether the Act is even applicable at all. If the courts
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accept Ford's interpretation of the statute on this point, there is no

need to reach the constitutional issues. Alternatively, Ford has

conceded at oral argument that a favorable ruling on the merits would

render its federal case moot. That is, should the state courts find

that Ford did have good cause to realign Meredith's relevant market

area and relocate another dealer to Plymouth, the controversy

underlying its federal constitutional claims would cease to exist. In

either case, a federal ruling on the state law claims would, at this

juncture, be "a forecast rather than a determination," Pullman, 312

U.S. at 499, "a tentative answer which may be displaced tomorrow by a

state adjudication." Id. at 500.

In addition, there remain important disputes of fact relevant

to the statutory claim. See, e.g., Santasucci, 607 F.2d at 529

(stating that the presence of disputed factual issues underlying a

state-law claim reinforces the desirability for the case to proceed

through the normal state court system). For example, the parties do

not agree on when their current contract came into effect. Ford

asserts that the Agreement has not been significantly modified since

1972, while Meredith claims that amendments made as late as 1990

created a new contract between the parties. In its order, the Board

found that Ford's acknowledgment of a change in management in 1980

"effectively amended" the Agreement and made that year the reference

point for the application of the Act. For its part, the district court
6 Indeed, should the state courts conclude that the Agreement was

significantly amended after 1981, even the retroactivity question could

be moot.

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concluded that the Agreement was significantly modified by an

indemnification amendment in 1978, a determination that was significant

to its constitutional contract impairment analysis. In the event that

the New Hampshire courts uphold the Board's decision, the factual

grounds for doing so could "materially alter the nature of the problem"

and affect our resolution of the constitutional issues.6 Romany, 742

F.2d at 40 (quoting Harrison v. NAACP, 360 U.S. 167, 177 (1959)).

Finally, we take into consideration the federalism concerns

supporting abstention. In particular, the implications of granting

Ford its requested relief would be to declare that the Board lacked

jurisdiction to hear the protest in the first instance (and to vacate

its rulings), an outcome that would "disrupt substantially the review

proceedings now pending before the [Superior Court]." Bettencourt,

M.D. v. Bd. of Registration in Med., 904 F.2d 772, 777 (1st Cir. 1990).

Normally, a federal proceeding that would interfere with an ongoing

state judicial proceeding calls for Younger abstention. See Younger v.

Harris, 401 U.S. 37, 43-54 (1971); see also Pennzoil Co. v. Texaco

Inc., 481 U.S. 1, 10-14 (1987) (applying Younger to private litigation

that involves important state interests). Here, the avoidance of

"needless friction" between the federal and state proceedings carries
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some weight in our decision to abstain from deciding this case. See

Pullman, 312 U.S. at 499-500.

The possibility that the New Hampshire courts may not address

the constitutional issues is inconsequential under Pullman. This is so

because a "stay pursuant to Pullman abstention is entered with the

expectation that the federal litigation will resume in the event that

the plaintiff does not obtain relief in state court on state-law

grounds." Rivera-Puig, 983 F.2d at 322 (quoting Moses H. Cone Mem'l

Hosp. v. Mercury Const. Corp., 460 U.S. 1, 10 n.9 (1983)); see also

Pub. Serv. Co. of N.H. v. Patch, 167 F.3d 15, 24 (1st Cir. 1998)

(observing that "Pullman abstention calls for deferral of a case rather

than dismissal"); Pustell, 18 F.3d at 54-55 (abstaining on Pullman

grounds but retaining jurisdiction pending a decision by the

Massachusetts state court on proper interpretation of statute).

Accordingly, we hold that the district court should abstain in the

current proceedings, retaining jurisdiction pending final review of the

Board's decision in the New Hampshire state courts. See Pustell, 18

F.3d at 54-55.

The decision of the district court is vacated and the case

remanded for proceedings consistent with this opinion.