Opinion ID: 674617
Heading Depth: 2
Heading Rank: 2

Heading: The MFIL's Private Right of Action

Text: 55 Geib challenges the district court's ruling that section 27 of the MFIL, MICH.COMP.LAWS ANN. Sec. 445.1527, does not authorize private actions for damages. This ruling, in contrast with the PMPA analysis, does not implicate any federal law, and jurisdiction in this court solely rest[s] on the fact that [the] plaintiff and [the] defendant are citizens of different States. Lumbermen's Mut. Casualty Co. v. Elbert, 348 U.S. 48, 54, 75 S.Ct. 151, 155, 99 L.Ed. 59 (1954) (Frankfurter, J., concurring). 56 Although the MFIL plays an important role in the regulation of franchise relationships in Michigan, no state court has yet had an opportunity to determine whether section 27 creates private rights of action. However, section 27 claims have now been asserted twice in federal litigation involving Michigan franchises. In the first federal interpretation of section 27, General Aviation, Inc. v. Cessna Aircraft Co., 915 F.2d 1038, 1044 (6th Cir.1990), the court allowed an action for damages to proceed after concluding that private rights of action had been authorized by certain MFIL amendments in 1984. 6 57 The Cessna court began its analysis by examining the text of section 27 as initially enacted in 1974. The court explained that section 27 originally prevented franchisors from adopting certain unduly advantageous franchise provisions through an elaborate scheme of prospectus registration, which required the filing of all franchise offerings with the Michigan Department of Commerce. By empowering the Department to prohibit any registration from becoming effective if the prospectus contained any of the provisions listed in section 27, the MFIL used prospectus registration to remove undesirable terms from franchise agreements. 915 F.2d at 1044. In light of this complex enforcement scheme, the Cessna court concluded that the original text of section 27 does not by its terms provide for a private right of action by the franchisee. Id. 58 The Cessna court continued its analysis by discussing the 1984 MFIL amendments, which were primarily designed to abolish the prospectus registration system--a system widely considered both cumbersome and ineffective. Several historical documents express the broad consensus among proponents of reform that the elimination of prospectus registration would alleviate the burden upon franchisors without increasing the risk to franchisees. The report of the Legislative Analysis Section of the Michigan House of Representatives explains the motivation for amending the MFIL in 1984: 59 Many reputable franchisors have decided that doing business in Michigan is more trouble than it is worth, pointing out that the required paperwork is at times ridiculously extensive and time-consuming, and state regulators are sometimes inconsistent in their application of the law. Moreover, a decade of experience has shown that the act is of little use against the shady operators who were of greatest concern: such types did not register anyway. 60 Last summer, representatives from the governor's office, the attorney general, the commerce department, the Consumers Council, and various franchisors began developing an alternative approach to franchise regulation in Michigan. It was generally agreed that prospective franchisees could be adequately protected through franchisor disclosures and a strong state enforcement capability; many of the act's requirements for submitting information to the state were superfluous and could safely be replaced with a simple filing requirement. House Bill 5119 is the result. 61 MICH. HOUSE LEGIS. ANALYSIS, H.B. 5118 & 5119, at 1 (July 17, 1984). 7 62 Having abolished prospectus registration, the MFIL lost its primary mechanism for removing undesirable terms from franchise agreements. To provide franchisees with new protection, the text of section 27 was revised to declare the listed provisions void and unenforceable if contained in any documents relating to a franchise. MICH.COMP.LAWS ANN. Sec. 445.1527. According to the Cessna court, the insertion of this phrase--void and unenforceable--in 1984, as a replacement for prospectus registration, authorized private rights of action under section 27: 63 Apparently no concerted effort was made to enforce the 1974 Act, and in 1984 it was amended to make the four statutory prohibitions [in section 27] more effective by making any franchise contract provisions in violation thereof void and unenforceable, Sec. 445.1527, thereby creating private rights of action for their violation. 64 915 F.2d at 1044. 65 No Michigan court has addressed the viability of private actions under section 27 since Cessna was decided. The ruling of the district court below is the second federal interpretation of section 27, and that court's independent review yielded a conclusion substantially at odds with Cessna. Explaining that this cause of action is not provided by th[e] statute, the district court dismissed Geib's MFIL claim. The district court apparently placed great emphasis on the text of MFIL section 34, which instructs courts not to imply private rights of action: 66 Except as explicitly provided in this act, civil liability in favor of any private party shall not arise against a person by implication from or as a result of the violation of a provision of this act or a rule or order hereunder. 67 MICH.COMP.LAWS ANN. Sec. 445.1534. 68 The direct conflict between these interpretations of Michigan law within the federal court system, viewed in conjunction with the substantiality of the competing arguments, suggests that this matter can most authoritatively be resolved by the Supreme Court of Michigan, which bears ultimate responsibility for reconciling that state's competing policy interests. Franchise agreements often cross state borders, and the resulting diversity of citizenship draws many franchise disputes into a federal tribunal, notwithstanding the presence of state law claims. As a consequence, we perceive a very real danger that Michigan's courts will be denied any meaningful participation in the interpretation of section 27. 69 In light of the likelihood that section 27 claims will recur in federal litigation, without an opportunity for Michigan courts to determine whether that provision authorizes private actions, we certify this question to the Supreme Court of Michigan. We believe that judicious resort to the technique of certification in situations such as this, where an important question of state law has arisen solely in federal court, prevent[s] federal invasion of the state law-making function and [avoids] needless federal-state friction. Note, Inter-Jurisdictional Certification: Beyond Abstention Toward Cooperative Judicial Federalism, 111 U.Pa.L.Rev. 344, 350 (1963). Indeed, the Supreme Court has recommended that we use certification to address the problem of authoritatively determining unresolved state law involved in federal litigation. Clay v. Sun Ins. Office Ltd., 363 U.S. 207, 212, 80 S.Ct. 1222, 1226, 4 L.Ed.2d 1170 (1960). By certifying the MFIL question before us today, we not only avoid the hazards of attempting to forecast how [Michigan] courts might rule, but we also afford the [Supreme Court of Michigan] the opportunity to address a not insubstantial issue under the law of that State. Lee v. Wheeler, 810 F.2d 303, 306 (D.C.Cir.1987). Certification also saves time, energy, and resources and helps build a cooperative judicial federalism. Toner v. Lederle Labs., 779 F.2d 1429, 1432 (9th Cir.1986) (Kennedy, J.). 70 Pending the outcome of the request for a ruling on the certified question, we reserve judgment on the district court's dismissal of Geib's MFIL claim. To avoid any perceived need to file a protective petition for certiorari regarding the issues decided elsewhere in this opinion, we retain jurisdiction over this entire controversy, and no final judgment shall enter until we resolve the MFIL issues, presumably upon receipt and consideration of any action by the Supreme Court of [Michigan] in response to our certified question. Firestone v. Galbreath, 976 F.2d 279, 288 (6th Cir.1992).