Opinion ID: 1843599
Heading Depth: 1
Heading Rank: 3

Heading: The Franchisee's Statutory Protections.

Text: Among the statutory protections afforded a franchisee in Zimmerman's position at the time of the challenged transaction was the following: Notwithstanding the terms, provisions or conditions of any agreement or franchise, subject to the provisions of subsection 2 of section 322A.11, in the event of the sale or transfer of ownership of the franchisee's dealership by sale or transfer of the business or by stock transfer or in the event of change in the executive management of the franchisee's dealership the franchiser shall give effect to such a change in the franchise unless the transfer of the franchisee's license under chapter 322 is denied or the new owner is unable to obtain a license under that chapter, as the case may be. Iowa Code § 322A.12. Also deemed important by the parties in the present action are the consequences of a 2002 amendment to the foregoing statute, which changed the words shall give effect to such a change in the franchise to shall give effect to the change in the franchise, and added the following additional paragraph: Notwithstanding the terms, provisions, or conditions of an agreement or franchise, the sale or transfer, or the proposed sale or transfer, of a franchisee's dealership, or the change or proposed change in the executive management of a franchisee's dealership shall not make applicable any right of first refusal of the franchiser. 2002 Iowa Acts ch. 1063, § 39 (emphasis added). We approach issues of statutory interpretation with the avowed purpose of determining the true intention of the legislature. Gardin v. Long Beach Mortgage Co., 661 N.W.2d 193, 197 (Iowa 2003); Bernau v. Iowa Dep't of Transp., 580 N.W.2d 757, 761 (Iowa 1998). Our first step in ascertaining that intention is to closely examine the statute's language. Bernau, 580 N.W.2d at 761. When the legislature has not defined the words of a statute, we look to prior decisions of this court, similar statutes, dictionary definitions, and common usage. Id. We have recognized that section 322A.12 is intended to override any contrary provisions contained in a franchise agreement. Craig Foster Ford, Inc. v. Iowa Dep't of Transp., 562 N.W.2d 618, 622 (Iowa 1997). Proceeding from that premise, we are convinced that a literal interpretation of section 322A.12, as it existed at the time of the challenged transaction, is entirely inconsistent with a recognition of a right of first refusal in the franchiser. In considering the district court's reasoning, we are not persuaded that the identity of the new franchisee is not a significant element of the transaction from the perspective of the selling franchisee. The very existence of a right of first refusal could make a prospective buyer feel uncomfortable. Second, although certain matters important to the transferring franchisee might be included in the agreement of sale that the franchiser would be forced to match, this too might dissuade a prospective buyer from purchasing the franchise. Finally, and perhaps most important, the identity of the new franchisee may be of extreme importance to the existing franchisee in the case of a desire to sell to family members or close friends. The statutory language provides the franchiser shall give effect to such a change in the franchise. In this context, such indicates of the character, quality, or extent previously indicated or implied. Merriam-Webster's Collegiate Dictionary 1172 (10th ed.2002). Change is a word meaning transformation. Id. at 191. In the context of this statute, the words such a change manifestly refer to the specific franchise transfer that the parties have negotiated. Given the language used in the agreement, the crucial question becomes whether a franchiser's exercise of a right of first refusal constitutes a refusal to give effect to the sale or transfer of ownership. We are convinced that it does. It seems clear the right conferred by this statute was intended to be unfettered except as it has been limited by the statute. The only exceptions that the legislature has provided to the franchiser's obligation to give effect to the change are the inability of the new franchisee to obtain a license or a successful challenge to the franchise under section 322A.11. Neither of those circumstances exist in the present case. We have recognized that the legislature may regulate by omission as well as by inclusion. Barnes v. Iowa Dep't of Transp., 385 N.W.2d 260, 263 (Iowa 1986). This is particularly true when certain conditions of entitlement are listed and others are not. Id.; In re Estate of Wilson, 202 N.W.2d 41, 44 (Iowa 1972); N. Iowa Steel Co. v. Staley, 253 Iowa 355, 357, 112 N.W.2d 364, 365 (1961). The appellees seek to confirm the validity of the district court's interpretation of section 322A.12 by invoking the presumption that any material change in the language of a statute is presumed to alter the law. See State v. Ahitow, 544 N.W.2d 270, 273 (Iowa 1996). Based on this premise, they urge that the enactment of an express prohibition of rights of first refusal in the 2002 amendment to section 322A.12 indicates that such a right was not denied a franchiser by the statute prior to its amendment. This argument would be significant only if our attempt to determine the meaning of the act prior to the amendment left us with some doubt. For the reasons we have stated, it does not. In State v. Guzman-Juarez, 591 N.W.2d 1 (Iowa 1999), we expressed approval of the following principles in evaluating the effect of time and circumstances on the interpretation of a statutory amendment. If [the amendment] follows immediately and after controversies upon the use of doubtful phraseology therein have arisen as to the true construction of the prior law it is entitled to great weight. If it takes place after a considerable lapse of time and the intervention of other sessions of the legislature, a radical change of phraseology would indicate an intention to supply some provisions not embraced in the former statute. Guzman-Juarez, 591 N.W.2d at 3 (quoting People ex rel. Westchester Fire Ins. Co. v. Davenport, 91 N.Y. 574, 591-92 (1883)). There is reason to suspect that the 2002 amendment to section 322A.12 was in direct response to the trial court's decision in the present case. As such, we are convinced that it represents an attempt to clarify the meaning of the statute as it existed prior to the amendment. Crivelli v. General Motors Corp., 215 F.3d 386 (3d Cir.2000), on which the appellees rely, is unpersuasive. Although that case upheld a franchiser's right of first refusal with regard to a transfer of the franchise, the statutory protection afforded the franchisee merely provided that the franchiser shall not unreasonably withhold consent to a transfer of a franchise. As previously noted, section 322A.12 provides with regard to a franchise change that the franchiser shall give effect to such a change unless certain enumerated conditions exist. Those conditions have not been shown to exist in the present case. Finally, we reject the appellees' contention that our decision in Midwest Automotive III, L.L.C. v. Iowa Department of Transportation, 646 N.W.2d 417 (Iowa 2002), recognized a change in existing law. Significantly, the change recognized in that case involved a 2001 amendment to Iowa Code section 322A.11. We are dealing with a 2002 amendment to section 322A.12. In speaking generally of the situation involved in the present case, we stated in Midwest Automotive III that, short of termination or the absence of a license, the statute requires a franchiser faced with the sale of a dealership to recognize the transfer. 646 N.W.2d at 423. We have considered all issues presented and conclude that the trial court erred in its interpretation of section 322A.12 as it existed at the time of the challenged transaction. The provisions of the statute at that time rendered invalid the franchiser's right of first refusal as contained in the franchise agreement. The judgment of the district court is reversed, and the case is remanded to that court for entry of a declaratory judgment consistent with this opinion. REVERSED AND REMANDED.