Court Opinion

ID: 199547
Source: CourtListenerOpinion
Date Created: 2011-02-07 04:32:25+00
Date Added: 2024-06-11T17:27:01.179887
License: Public Domain

257 F.3d 67 (1st Cir. 2001)
FORD MOTOR COMPANY, Plaintiff, Appellant,v.MEREDITH MOTOR COMPANY, INC., Defendant, Appellee.
No. 00-2506
United States Court of Appeals For the First Circuit
Heard May 9, 2001Decided August 6, 2001

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.
Before Torruella, Circuit Judge, Campbell, Senior Circuit Judge, and Schwarzer,* Senior District Judge.
TORRUELLA, Circuit Judge.

1
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.

2
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  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

3
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.

4
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  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:

5
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.

6
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.

7
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."

8
Id. § 357-C:6.

B.  The Dispute

9
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."

10
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  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

11
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  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.a24, 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.

12
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); 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").

13
We believe that Pullman abstention is appropriate in this  case.3  To determine this, we consider two factors: (1) whether there  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. Garca-Rosario, 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  could eliminate entirely the need to address the constitutional  issues."  Pustell, 18 F.3d at 53.

14
A third factor counsels in favor of abstention.  "Where there  is an action pending in state court that will likely resolve the state-law 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.

15
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  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.

16
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  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)).

17
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  some weight in our decision to abstain from deciding this case.  See Pullman, 312 U.S. at 499-500.

18
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.

19
The decision of the district court is vacated and the case remanded for proceedings consistent with this opinion.

Notes:

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

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  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.

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)).

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.

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.

6
   Indeed, should the state courts conclude that the Agreement was  significantly amended after 1981, even the retroactivity question could  be moot.